The Financial Times published an article today, January 16, written by Ralph Atkins and entitled “Greece must resist return to capital markets.” The articles analyses all the possible scenarios in case Greece decides to enter the international capital markets too soon.
Ireland, which has already managed to exit the support program in December and Portugal that plans to do the same in June, have offered some long-term bonds to the capital markets, attracting a lot of international attention. The yields of these bonds have almost returned to their pre-crisis standards, giving Greece hope that maybe it will be able to do the same.
According to the article, an “early return to international capital markets could confirm a turn-round in Eurozone fortunes; it is less than two years since Greece defaulted. But investors should beware of any early gifts from Greece. Athens’ return to borrowing from international investors could instead prove a harbinger of fresh troubles for other Eurozone countries as well as Greece.”
It continues: “Proof that it could again raise funds independently would allow Prime Minister Antonis Samaras, to become even more assertive in resisting austerity measures. It would provide financial flexibility, providing scope to counter the worst social effects of austerity. Greek banks’ balance sheets, already substantially reworked under the bailout, would strengthen further.”
Many believe that Greece’s return to capital markets would be like giving ouzo to an alcoholic. There is a high risk of failure in the first auction of government securities, which could result in hurting the trust towards other Eurozone markets.
The article concludes “Instead, Athens needs to tread carefully. To edge its borrowing costs lower, Greece needs to regain the confidence of a broad range of conservative European investment funds.”